It's said that nothing in this world is certain except death and taxes.
The rising cost of housing should perhaps be added to that list.
All property owners know this reality. But, whether it's increased to cover a homeowner's insurance costs, escrow withholdings, homeowner's association dues, or mortgage interest rates, it is pretty rare that the cost of owning property decreases.
Investment property owners are not spared these increases. In fact, they may be more susceptible based upon a myriad of factors such as interest rates, management fees, and maintenance requirements between tenants.
Also, the law of supply and demand comes into play with rental properties. For example, if a new, 300-unit apartment complex opens within a mile of your two-bedroom rental property, the supply of similar nearby properties has increased, which may prevent you from commanding a higher rate. Similarly, if your rental properties are in established areas rising in popularity and, therefore, experiencing a population swell, or if you are in a popular vacation area, you may be able to fetch a higher rental rate.
So, when is it the right time to increase the rent on your investment properties? How much should you increase the rent?
Here are a few guidelines you can follow when deciding whether or not to adjust how much you are charging for rent.
KNOW YOUR WHY
What is your rationale for raising the rent? Usually, expenses like property taxes, utilities, HOA dues, and insurance premiums increase slightly over time. You will want to consider these cost increases and determine whether to pass these increases along to your tenants.
Raising rent between leases is pretty easy as you are not asking an existing tenant to adjust their personal budget. Raising rent on a current tenant is a little more challenging as you risk aggravating that tenant and potentially dealing with tenant turnover. It is a good practice to give existing tenants a decent amount of time – 60-90 days – before their lease ends to inform them of a future rent increase so they can make proper budget adjustments or consider moving out of the property.
How much to raise rent is an age-old question that never has the same answer. Truth be told, how much to increase rent depends significantly on the owner's circumstances and any changes to their carrying costs or desire to bring in more profit month-over-month. You will want to determine what rate comparable nearby properties are commanding, so shopping your competition – nearby apartment complexes or an online check of available properties in the vicinity – is a good idea.
DON'T BE CASUAL
Even if you have a great relationship with your tenant, raising rent is a business decision and affects the legally binding contract you will operate under with that person. Communication regarding rent increases should be sent in written form. This can be sent by email, but a written letter is preferable. Be clear with the end date of their current lease, the amount of the rent increase, and the start date of the increased rate. This communication is also a good opportunity to remind your tenants about payment policies, late fees, etc.
KNOW THE LAW
Different states and localities can have different laws surrounding housing and rent. You will want to be familiar with applicable laws when adjusting rental rates for your properties. For example, North Carolina does not have a law determining how much landlords can raise the rent once a lease ends. For month-to-month leases, landlords must provide at least seven (7) days' notice before the next rent due date.
STAND BY YOUR DECISION
Many tenants, if not most, understand that cost-of-living increases exist and that their monthly rent is not immune to such truths in life. They likely have received cost-of-living adjustments in their pay rates and have noticed the prices of other goods and services increasing. If they ask why you are increasing their rent, explain your rationale – your expenses and cost-of-living increases, any improvements or amenities you have added to the property, etc. If they insist that the rate adjustment is too much, offer them some information regarding comparable rental rates in the area and let them know that you have researched the matter and not made your decision haphazardly.
As a leading property management firm in the Cape Fear region, Sweyer Property Management certainly recommends that property owners strongly consider working with a trusted and experienced property management company. Additionally, we want to make sure property owners and investors understand the relationship they are entering into when choosing to work with a property management firm.
If you have investment properties and do not use a professional management company, we hope you consider doing so. The experts at Sweyer Property Management will be happy to provide you with a free rental analysis or, if you prefer, give us a call at 910-239-1338.
Sweyer Property Management is a full-service professional property management company specializing in all aspects of rental management. If you're an investor or property owner looking to learn more about our services and what a professional property manager can do for you, reach out to us today at 910.256.3031 or via our website. Sweyer Property Management has exhibited continuous growth throughout the Wilmington, Leland, and Hampstead areas while maintaining an excellent Google+ rating for customer service.
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